The Tax Institute calls for clarity, understanding in PCG 2025/D3 draft

In a submission to the Tax Office, The Tax Institute outlined specific areas of the Draft Practical Compliance Guideline (PCG 2025/D3): Global and domestic minimum tax lodgement obligations – transitional approach (draft PCG) needing refinement or amendments.

The ATO first released the draft PCG for public consultation in July this year, with the guideline outlining its transitional administrative and compliance approach regarding lodgment and penalty enforcement for entities subject to the Global and Domestic Minimum Tax under the Australian Global Anti-Base Erosion Model Rules (GloBE) Pillar Two rules.

The regulator revealed that when finalised, the guideline was proposed to take effect from 1 January 2024 and was set to apply to lodgments for fiscal years commencing on or before 31 December 2026 and ending on or before 30 June 2028.

In its submission, The Tax Institute highlighted the key areas of scenarios for local GIR submission, the base penalty amount, penalty for false or misleading statements and other penalties and some of the provided examples needing to be reviewed for the purpose of clarity.

The institute said the concluding sentence of paragraph 23 in the draft PCG indicated that, in some cases, the ATO may require the GloBE information return (GIR) to be lodged locally before the GIR is exchanged with the ATO by a foreign agency.

“However, the draft does not detail the circumstances that would trigger this requirement. While paragraph 24 seems to touch on one possible scenario, it is not clear if this is the only situation in which this would be required. It would assist the taxpayers if the draft PCG clearly defined the circumstances that would require the local submission of the GIR,” the submission noted.

Additionally, it was suggested that the base penalty amount needed to be improved to enhance taxpayer understanding, as the draft PCG didn’t provide a clear explanation of the concept or how it was calculated and consolidating this information within the draft PCG would enhance its clarity.

According to the institute, the base penalty amount corresponded to the Commonwealth penalty unit as outlined in section 4AA of the Crimes Act 1914 and was currently set at $330, updated every three years in line with the Consumer Price Index.

“Without this information, the quantum of penalties cannot be ascertained or even broadly approximated by taxpayers without having to make further investigations,” the institute said.

“Also, the draft PCG omits the relevance of time in determining the appropriate penalty, set out in subsection 286-80 of the Taxation Administration Act 1953 (Cth). It should clarify that the base penalty amount is determined as one penalty unit for each 28-day period.”

Paragraph 35 within the draft PCG was also noted in the submission to need adjustment, as it indicated that penalties were doubled for false or misleading statements, as well as for instances where a taxpayer asserted a position that was not reasonably arguable or failed to submit a return, notice, or document, leading to a default assessment.

The institute said: “It would be beneficial if that draft PCG were to provide a worked example of how this applies in practice” as example six of the guidance did not calculate the amount of the penalty the Jasper MNE group would be liable to pay.

“To improve transparency and understanding, it would be beneficial for the draft PCG to provide concrete examples illustrating the concept and the methodology used to calculate the penalty amount.”

Examples in the draft PCG generally provided useful practical guidance, however, examples one, two and four focused solely on situations where taxpayers submitted their GIR and Combined Global and Domestic Minimum Tax Return (CGDMTR) by the deferred due date and could demonstrate reasonable measures had been taken.

“To more practically assist taxpayers, it would be beneficial to cover examples of other circumstances, including the implications of not lodging the GIR and CGDMTR by the deferred due date, whether due to taking or not taking reasonable measures,” the submission said.

“Additionally, as a matter of greater transparency, the draft PCG should clarify instances when the ATO would consider further extension requests.”